Ellerston Capital is backed by James Packer, the owner of The Star’s rival casino company Crown Resorts.

In a filing to the Australian Securities Exchange Ellerston Capital confirmed it had increased its stake to 5.07 per cent.

The fund said it had taken an interest in The Star because despite a fall in VIP activity, it believed The Star would be benefit long-term in the ongoing growth in inbound Chinese and South East Asian tourism into Australia.

“We see solid growth prospects for Star, driven by its capital investment program and growth strategy,” Ellerston said.

Citi analyst Rohan Sundram speculated that any tie-up between the two operators could deliver $100m although he said the numbers were purely ‘hypothetical.’

He predicted that if Crown offered $6.45-cash-per-share for The Star, there could be 19 per cent to 22 per cent of earnings per share.

“Through its expanded scale across Australia, we estimate that a combined Crown and Star would increase its share to around 86 per cent of domestic mass market revenue and 90 per cent of VIP revenue amongst the major casino operators,” Mr Sundram said. “We believe the combined group could potentially offer more compelling loyalty reward offerings to customers across their various properties nationally,” Mr Sundram said.